Will “Space Race” Energy from “The Forgotten Stone” Transform the World and Make You Rich?

by Travis Johnson, Stock Gumshoe | September 19, 2019 2:17 pm

Checking into the "space energy" teaser pitch from Oilprice.com

This is definitely my favorite kind of teaser ad — the mysterious element, the hidden asset, the pioneering scientists, we get it all! Here’s the bit that got me interested:

“On December, 1996, researchers stumbled onto something truly remarkable.

“A discovery that could be straight out of an X-Files episode…

“A tiny, extraterrestrial stone…

“Buried in the middle of the Egyptian desert.

“A fragment broken off something much bigger…

“Evidence of a new fuel source so powerful that it could

“Satisfy humanity’s energy demand for the next 10,000 years.”

It’s like something from the back of a thriller novel, right? But wait, there’s more!

“This single rock contains a little-known element that could lead to the greatest technological shift of our lifetime — even more life-changing than the internet…

“And create a wave of new billionaires rivalled only by the oil[1] boom.

“Valued at up to $5 billion per ton…

“And…

“Meeting the zero-emissions standard.

“This Could Disrupt the Trillion Dollar Energy Industry”

Holy cow, so what is it? How do we buy some? Omigosh, this’ll be HUGE!

Oh, wait… it’s not really about this “energy source” — it’s about the race to someday maybe possibly get to that energy source, and perhaps use it, in the distant future.

What?

OK, I’ll explain… the pitch, which comes to us from Oilprice.com as they sell subscriptions to their Global Energy Alert ($99/yr) seems to be about an abundant energy resource…

“1 million metric tonnes laying well within our reach.

“That’s about 10 times more energy than we could get from mining every single fossil fuel source on Earth.”

… but it’s really about an abundant possible energy resource on the moon.

The “forgotten stone” is, basically, moon rocks — or, more specifically, helium-3 from the lunar surface that can (probably) be used in fusion reactors to produce relatively safe and clean energy. Helium-3 comes from the Sun, but is blocked by the earth’s atmosphere so to get it in any meaningful concentration you have to go to space, with the Moon being the closest source.

So the big picture is that the race for helium-3 is what’s going to spur the next phase of the space race to explore and set up mining on the Moon, and the winning investments will be the companies who profit from increased space exploration and more trips to the Moon.

None of this is new… the promise of fusion reactors has been talked about since the 1920s, and the first wave of small experimental fusion reactors has generated plasma in just the past five years or so, with progress being steady but not, as far as I can tell, reaching the “breakthrough” point (where the reaction is sustainable and safe and creates more energy than it consumes). Not all of the experiments use helium (or helium-3, which for any meaningful scale project you’d have to either create in a different nuclear reaction, or mine outside of earth’s atmosphere), but apparently that’s safer than the hydrogen[2] isotopes that have been tried.

The stories about mining the moon for helium-3 have been in the mainstream media for well over a decade[3], and presumably they were talked about before that. Most folks seem to think that this is a part of the reason to go to the Moon, and a part of the reason why many countries are competing to establish a meaningful presence on the Moon, but I don’t think anyone is in the “we’ll be mining the Moon within 20 years” camp. This is a far-future possibility based more on the exhaustion of the Earth’s fuel sources (which is debatable, too) than on the actual near-term viability of helium-3 fusion reactors and an industrial mining and transport operation on the lunar surface… though I’m sure there’s always someone who will predict that we’re just a few years away from a fusion “hallelujah” moment or a global war over the Moon. From what I read it’s more likely that the first resource extracted from the Moon would be water[4], to be used in rocket fuel for large payloads that use the Moon as a jumping-off and refueling point to Mars or elsewhere, but that’s also the stuff of future dreams at this point.

So anyway… all that miraculous energy talk is really just in service to a teaser ad about some space investments. More from the ad:

“We Expect a Huge Announcement Later This Year That Could Potentially Turn a Small Sum Into a Massive Fortune If Invested in the Right Company

“There’s an exciting announcement set to break later this year, and when it does, four early players in this energy game could turn quick profits….

“Already a record 120 Venture Capitalist firms have committed $325 million dollars per month into businesses surrounding this new frontier…

“Jeff Bezos – the richest man on the planet said he is spending his entire $131 billion Amazon fortune to secure this new market.

“Google is already in for $900 million, backing a promising private company…

“And Softbank Group, a Japanese VC firm, has a massive $1.2 billion bet on this burgeoning sector.

“Even Sir Richard Branson of Virgin Atlantic recently received $1 billion from Saudi Arabia to fund his efforts.”

Yes, private space companies have been getting a lot of funding, from SpaceX[5] to Bezos’ Blue Origins, much of it supplied by billionaires fulfilling childhood astronaut dreams (though no less real for that). Rockets keep getting cheaper and the rich keep getting richer… and sometimes they are good matches for each other. The high-profile stuff has been focused on either providing better and cheaper satellite launch options[6], letting pretty much anyone with an idea float a small satellite into space, or on space tourism.

What else is teased?

“During the next 18 months, a handful of little-known companies might see their share prices rise dramatically in response to the upcoming announcement….

“These disruptors could burst the ‘carbon bubble’ — and render fossil fuels inferior….

“Early investors will hold bragging rights unlike anything we’ve seen since the early oil boom that turned everyday Americans into an elite class of wealthy families for generations.

“Plus, I’ve uncovered a company paying out passive income checks of $942… $4,712… $9,425 over and over again. Checks like this could fund the retirement[7] you’ve been dreaming of.”

Wow… saving the world, getting bragging rights, and enjoying passive income checks? It’s like they had the whole Copywriting 101 class work on just this one ad!

More from the ad…

“And unlike Earth, most of the moon’s resources are in the topsoil. No drilling required.

“That’s why it’s easy to see how lunar resources could economically be recovered and brought back to Earth…

“Like platinum[8] elements which come from iron meteorites previously crashed on the moon. And are currently valued up to $50,000 per kilogram.

“Lunar topsoil is also rich in useful raw materials such as magnesium, aluminum, silicon, iron and titanium.

“Rare earth elements are abundant too, with a wide range of applications, including energy, rechargeable batteries, renewables, healthcare[9], transportation, and even banknotes.

“That’s why financial analysts have reported the true value of the moon, when you factor in all the resources it holds, is actually worth $500 quadrillion…”

OK, so what are those stocks he’s touting?

“This energy story is completely under the radar, and the profit potential is still uncharted.

“My team has identified four companies to put on your watch list if want to capture your own slice of the pie.

“Right now, events are unfolding that will change everything about the lunar gold[10] rush.”

The rush is on because China[11] has been exploring the Moon, as has India[12], and Russia[13] isn’t far behind, we’re told.

And Stafford does mention that lunar water resource, too…

“NASA just inked a deal to partner with Bezos to harvest the most important resource on the moon next to Helium 3…

“Water, and harvest it for rocket fuel.

“That means the moon will soon have its own gas stations for rocket fuel so to speak.

“Mining helium-3, platinum, iron, and its other resources will happen as quickly as we can make a trip to and from space.”

[14]Funny enough, the ad actually included a photo stolen not from Blue Origin, which is developing the Blue Moon lander… but from Blue Moon, the beer brand, which has been promoting the anniversary of Apollo 11 with a novelty Blue Moon Lunar Keg
https://twitter.com/BlueMoonBrewCo/status/1126884295128363014 — I don’t think he meant to include the version of the “lander” that has beer taps built in[15], but I love that he did.

And it’s this Blue Origin project that is apparently the catalyst Stafford sees sending the space stocks soaring…

“Bezos said they will begin testing lander engines this summer.

“With China nipping on the U.S.’ heels, it is likely Bezos will make a special announcement concerning Blue Moon and the race to claim the moon’s resources later this year

“And when he does, it could completely turn the tides in the space race.

“That’s why it is absolutely critical to get the facts on the fastest growing space companies right now…”

If anything is a slow and simmering industry, it’s space exploration… but sure, perhaps something big will be announced and everyone will get excited for a time, I don’t know.

So… what are the four? Let’s check out the clues…

“Years before any single company shoots to the moon to mine for this new fuel…

“They need to figure out exactly where to dig.

“That’s where my first pick for a potential QUADRUPLE-digit gain comes into play…

“They build and maintain small satellites in space that orbit the moon to scan for rich deposits of lunar gold.

“The number of these small satellites in orbit is projected to increase by 1,500% in the coming years…

“At the same time, the cost to build them will decrease by 8%.”

OK, lots of smaller satellite companies out there these days as the price of launches has dropped and the size of satellites has shrunk… what else do we learn about this first stock?

“… after a recent merger of the top three international companies in this mini-market… we have an emerging global leader in one publicly traded company.

“Almost instantly this company’s value shot up 147%.

“But the best part is…

“You can still grab this company for just $8 a share on the NYSE….

“And in the first part of 2019 their revenue was already up 57%.”

OK, those are good little tidbits for the Thinkolator… what else?

“They provide images from their small satellites in orbit to power functions like Google Earth and Apple Maps….

“But the U.S. government is their biggest investor… with a contract worth over $900 million just in 2019.

“Yet with a market cap of just $450 million, this tiny company is still very much under the radar and tremendously undervalued….

“I fully expect this tiny company could grow 1,500% or more after they successfully test their newest small spacecraft…”

Hoodat? This is Maxar (MAXR). And yes, it did recently get an extension [16]of their satellite imagery access contracts with the National Reconnaissance Office and the National Geospatial-Intelligence Agency that could hit $900 million over five years or so. Maxar is a little more interesting now at a $500 million market cap than it was at a $2 billion market cap when I covered the stock about a year agofor a different “billionaires space race” teaser ad[17], but it’s still a challenging stock to consider.

Maxar is a roll-up of satellite companies, essentially, including both the profitable stuff like DigitalGlobe’s imaging services and some big old geostationary communication satellite operations that are unprofitable and which they had considered selling during last year’s collapse (earlier this year they decided to keep them and restructure[18]). They went into a massive amount of debt to fuel all their acquisitions over the past few years, and satellites require a huge amount of capital (and used to require even more), so the market cap is pretty small and the PE ratio is tiny (earning a little over $2 per share, so the PE ratio is well under 5) … but the enterprise value (net debt plus market equity capitalization) is very large at about $3.6 billion, so you really have to embrace the leverage[19] and the EV/EBITDA numbers instead of net income to be happy with this one (they’re expected to have about $500 million in EBITDA on a little under $2 billion in revenue — though depreciation and interest are both large line items that shouldn’t be completely ignored for a massively capital-intensive business like satellites).

Maxar does have a Lunar project[20], they got a contract (with Blue Origin and Draper) to build part of a demonstration project called the Lunar Gateway[21] to establish a presence around the Moon. This is a five-year, $375 million contract in total, so it’s not going to be a massive financial impact on Maxar anytime soon, but it is at least cool (and really, for at least half of us “cool” is what we’re looking for when it comes to “space stocks” — particularly because so many of the little and interesting ideas are not all that financially compelling at the moment).

The company is in the early phases of a turnaround, spurred by the fact that they collapsed so thoroughly a year ago and scrapped their dividend to preserve cash, so good news is taken well — like last week, when a JP Morgan upgrade and a contract to build antennas for Airbus satellites helped the stock surge higher by about 30%. And certainly the best news of all for a highly indebted company is when interest rates are hitting new lows every day and money begins chasing even the most speculative bond issues, so if that continues and Maxar can keep covering its interest costs. They won’t be building a Lunar satellite array next year, but the business does, at least, look quite a bit better than it did a year ago… and if they can manage the debt and keep getting contract renewals, the valuation looks pretty attractive on the surface.

What’s number two?

“Collect ‘Lunar Royalty Checks’ for $37,700 in cash payouts this year.

“I’ve found a way for you to receive four lunar gold payouts every year… starting just a few days from now.

“Checks payouts like $942… $4,712… 9,425.

“That’s $37,700 — or MORE — in extra income every single year!

“And payouts like this have been happening like clockwork for the past 15 years… going up, up and UP.

“This year alone, the payout increased 8.6%.”

As with so many teaser ads we’ve looked at in the past, there’s an implication that all you have to do is “sign up” to start getting your royalty checks…

“And it’s simple to get your name on the list to start collecting lunar gold royalty checks.

“Plus, it’s one of the safest ways for you to get in on this new opportunity.

“That’s because you’ll be collecting these checks right from moon race leaders like Boeing, Lockheed Martin, and Northrop Grumman without ever owning stock in any of these companies.”

No, you’d be owning stock in… Raytheon (RTN)

That’s a perfect match, though I concede that the Thinkolator was not given enough clues to be really certain that this is Stafford’s pick. $942 would indeed be the “royalty check” you got last quarter for holding Raytheon shares… if you held 1,000 shares (the company currently pays 0.9425 per share, per quarter). That would mean a pretty substantial capital outlay to get that $942 check, buying 1,000 shares of Raytheon would set you back about $200,000, but yes, it is possible. To get $37,000 a year, as teased, you’d have to buy 10,000 shares, which would cost you roughly $2 million.

For normal people who think in terms of valuation, yield and dividend growth instead of imaginative (or imaginary) “Lunar Royalties”, Raytheon right now is a large cap defense contractor that works on almost everything from aerospace systems to cybersecurity[22], trading at about 18X earnings and with a dividend yield of about 1.8%, and a dividend that has more than tripled in size over the past decade . The stock has performed very well during that decade as well, as you’d probably expect, with a total return of more than 450% that handily beats the S&P 500, but is pretty much exactly average for the sector (the iShares US Aerospace & Defense[23] ETF, ticker ITA, has also returned about 450% over the past decade).

I wouldn’t try to talk you out of defense electronics and computer giant Raytheon, which has its fingers in almost every pie at the Defense Department and is arguably trading at a discount right now because of confusion about their pending merger with part of United Technologies[24], but don’t expect massive royalties.

Another one?

“Lock in a 300% Gain on the Rockefeller of lunar gold.

“J.D. Rockefeller had a virtual monopoly on oil for decades because he controlled 90% of the domestic refineries and pipelines.

“No one could touch oil without first making a deal with good ‘ole JD.

“And now, there’s one company with seemingly similar market dominance when it comes to the moon…

“They happen to make the rocket motor it takes to launch every single shuttle into space.”

Ah, now that might start to sound familiar… here’s a little more hinting:

“They’ve become so dominant that the U.S. government has already tried to thwart their hold on the market. But all that came of it was that ‘they are required to supply solid rocket motors to competitors.’

“Which really just means their competitors have to pay the piper first.

“Right now, this company has zero competition…

“And with a financial backbone provided by Northrop Grumman…

“No one is going to touch them anytime soon.

“I don’t see why this stock couldn’t easily TRIPLE in the near future to reach that of its counterpart NOC.”

That’s almost certainly Aerojet Rocketdyne (AJRD)[25], which with Northrop Grumman (NOC)[26] has an effective duopoly control over the solid fuel rocket motor business in the US (thanks to Northrop buying Orbital ATK [27]a few years ago), and Aerojet is dominant in liquid-fueled rockets as well (they should not have been allowed to merge Aerojet with Rocketdyne to create that dominance, but it was allowed because the Defense Department said it was critical to national defense).

Aerojet had reportedly been about to shut down its solid-fuel rocket engine business because they didn’t win big recent contracts (like the one to replace the Minuteman ICBMs)…. but now they have joined Northrop’s bid[28], so will be part of the program (estimated at $63 billion, so it’s a big one). The contract hasn’t been awarded, but the bids are in and it looks likely that Northrop and its consortium, including Aerojet Rocketdyne, will presumably get the contract (Boeing is fussing about it, but who knows if that will mean anything… and they’ve got other challenges to work on at the moment).

I’ve long liked Aerojet Rocketdyne, but never quite talked myself into buying the stock when it was trading at a decent price… and now it’s overpriced, in my mind, so it’s harder still to consider it at $52 when I rejected it not too long ago at $35.

You don’t have that emotional hangup, however, so you can consider it on your own — AJRD trades at about 24X earnings and 18X free cash flow, with stable margins and revenue growth of about 2% a year leading to expected earnings growth from 2018-2021 of about 1-2% a year. That means you have to either bet on the future being much stronger than analysts foresee, whether because of their rocket engine near-monopoly or for other reasons, or you have to be willing to risk that you might wait for a very long time for earnings growth to catch up with the current valuation. Not a terrible stock, by any means, and the analysts might indeed be too conservative and not giving them enough credit for their near-monopoly position as supplier to the emerging new space pioneers… but it’s very hard to predict the lumpy defense and space industries and the government’s spending decisions a few years into the future. For me, AJRD stock today in the low $50s means you’re paying too much for not enough growth.

And one more…

“‘Unicorn’ startup valued by Wall Street at $1.2 billion.

“A ‘unicorn’ is a term investors use for privately held companies valued over $1 billion before going public.

“They’ve included the likes of Facebook, Amazon, and Cisco.

“On average, only four unicorns are born per year.

“And they tend to take 11 years to mature…

“The company I’ve identified just hit the 12-year mark.

“I believe any day now this company may announce plans to go public.

“Because their CFO just revealed to CNBC that he’s “getting more calls” even from the likes of J.P. Morgan.”

I really think it’s finally time to get rid of that silly “Unicorn” name, now that billion-dollar unprofitable startups are as plentiful as long beards and overpriced ranch houses in Silicon Valley… but we’ll let that pass for the moment. What other clues do we get about this one?

“Australia[29]’s sovereign wealth fund… just invested $140 million.

“… this unique company makes it fast and cheap to test new technologies in space.

“Their ‘small rocket’ can launch a spacecraft just the size of a refrigerator.

“And this company just opened an 80,000 square foot production warehouse — and doubled their workforce — to be able to produce one new small rocket per week.”

This is the Australian “boutique rocket” company Rocket Lab, which is, indeed, still private (and well-funded by a lot of big VC firms and the Australian government).

There’s no timeline in which a company is required to go public, and an “average” doesn’t tell you much, so I have no idea whether or not Rocket Lab is intending to hit the public markets anytime soon — or ever. They do have a massive pipeline of launches that have been ordered, and they say they “will soon be profitable” and are close to cash-flow neutral right now, so with the world awash in capital that investors love to throw at private companies, so they could stay private for a long time if they wish. They do seem to intend to go public, per this CNBC article from last November[30], but haven’t moved in that direction in any real way yet.

Their progress does seem really cool, as with most private space companies, and it’s fun to read about them — they’re even trying to reuse their rockets by catching the used booster with a helicopter[31], which sounds nutty but apparently isn’t the hardest part of the operation by a long shot… and they’re also building their own satellite business, to help people buy prefab satellites so they don’t have to design the whole thing themselves.

Will it be worth buying when it goes public? Well, once you tell me the price, I’ll answer that. Almost everything is enticing at one price and horrifying at another.

Incidentally, I do love it that when you search the terms “$140 million” and “Australia” you first turn up stories of an Australian man who was caught with $140 million worth of methamphetamine[32] because he ran into a parked police car. A good reminder, listening to a silly and hype-filled investment presentation isn’t the dumbest thing you can do — there are some worse ways to spend your time.

So there you have it — maybe someday we’ll be building helium-3 fusion reactors, and if so we might need to get that helium-3 from the Moon… which is but one of many reasons that governments and private investors are pushing forward to establish a presence on and around the Moon, and if that continues, as seems likely, then it will perhaps goose the long-term prospects of the companies who sell rocket engines and satellites and provide the other equipment and services that those space-exploiting endeavors require. I don’t own any of those companies and don’t find their valuations particularly compelling at the moment, but the three that are publicly traded have at least some logical exposure to the space business and a rational argument for owning their shares if you see a bright future for the sector.

Do any of those four sound particularly interesting to you, dear reader? Or particularly uninteresting? If so, please do let us know with a comment below.

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